ERP’s Place in the Cloud: Measuring Core and Two-tier Adoption

In a traditional sense, Enterprise Resource Planning (ERP) systems are often viewed as bulky, company-wide solutions that must be purchased, licensed, installed, and supported on premise. With the advent of cloud computing and other alternative hosting options, however, a larger spotlight is being put on the idea of ERP in the cloud for running core business functions. The advantages of this delivery mechanism align with the typical perks of going in to the cloud – faster implementation times, lower IT costs, no need for additional hardware, easier updates, and so forth.

That list of advantages appears to be gaining traction amongst companies that are either upgrading existing ERPs or starting from scratch. In fact, a new study from Gartner reveals a healthy appetite for cloud-based ERP systems from companies looking to replace aging core ERP systems that are either out of support or running on old technology platforms (like mainframes).

For Survey Analysis: Adoption of Cloud ERP, 2013 Through 2023, Gartner analyst Nigel Rayner covers the results of a Gartner Research Circle survey, which concluded that nearly half of companies plan to move core ERP systems to the cloud. Gartner points to small, midsized, and service-centric industries as those most apt to embrace cloud ERP, and reports that adoption rates are broadly similar by region (although EMEA – Europe, Middle East, and Africa – lags in short-term adoption).

Veteran enterprise software analyst and executive (and currently in product marketing for Plex Systems) Louis Columbus is more bullish on ERP’s place in the cloud than Gartner is. In his blog post Why cloud ERP adoption is faster than Gartner predicts, he writes that including the 2 percent of organizations that already have core ERP in the cloud, a total of 47 percent of organizations surveyed by Gartner plan to move their core ERP systems to the cloud within five years. In aggregate, 30 percent of respondents said that the majority of their ERP systems will be on-premises for the foreseeable future, Columbus writes.

Had Gartner had asked respondents “if and how” cloud-based ERP systems are being considered and used in two-tier ERP strategies, in which corporate headquarters use on-premise ERP software solutions and then allow a secondary solution (sometimes cloud-based) to subsidiaries, Columbus writes, the survey would have turned out differently. Benefits like faster time-to-market, reductions in the cost of quality, and the ability to replace legacy ERP systems that lack the scalability to support 21st century compliance, for example, are all prompting a growing number of companies to explore two-tiered cloud ERP offerings – which Columbus calls “the Trojan Horse of cloud ERP.”

So where does Microsoft stand on the issue of core ERP for large enterprises in the cloud? “We are going to be the first,” stated a confident Kirill Tatarinov, EVP for Microsoft Business Solutions in a recent interview. “Point me at a serious organization that runs end-to-end ERP in the cloud. NetSuite is not at scale, none of these guys are at scale,” said Tatarinov, in the article.

“Roughly 25 percent of ERP RFPs have cloud mentioned in them. Whether they end up going to the cloud is another matter altogether. There is a broad variety of reasons, ranging from privacy and availability to service level agreements,” he said. Tatarinov goes on to say that with the next major release of AX in 2015, the solution will be available in the public cloud and running on Azure.

And Microsoft has had its eye on the two-tier ERP opportunity at the enterprise level for years now, seeing its dual value in terms of winning new business customers and for displacing legacy providers to gain a foothold in enterprise accounts.

“We are going head to head [with Oracle and SAP] but we are also going into [their] environment and giving additional business workflows when they have [Oracle or SAP] in their headquarters,” Tatarinov told financial analysts two years ago. Even earlier, Microsoft started opening up about their own two-tier ERP strategy that utilizes Dynamics AX in the “spokes” and required lots of work to clean up after what had been an era of “laissez-faire, open market” app deployment outside of core ERP. The goal, the company explained at the time, was to standardize on Dynamics AX in the business units to gain efficiency and reduce risk.

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